# Compare two investment projects using IRR and NPV

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Two mutually exclusive investment projects have the following forecasted cashflows:

Year A B

0 -20000 -20000

1 10000 0

2 10000 0

3 10000 0

4 10000 60000

A Compare the internal rate of return for each project

B Compute the net present value for each project if the firm has a 10 percent cost of capital

c Which project should be adopted? and Why?

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#### Solution Preview

A Compare the internal rate of return for each project

Please see the attached file. We use the IRR function to calculate the IRR. IRR is the rate that makes the NPV=0.

IRR for project A is 34.9%

IRR for project B is 31.6%

B Compute the net ...

#### Solution Summary

The solution explains how the make the acceptance decision for mutually exclusive projects using NPV and IRR

$2.49